Define globalization: An essential element of globalization is the exchange across country boarder...we call this exchange "trade." What are some of the.

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Presentation on theme: "Define globalization: An essential element of globalization is the exchange across country boarder...we call this exchange "trade." What are some of the."— Presentation transcript:

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Define globalization: An essential element of globalization is the exchange across country boarder...we call this exchange "trade." What are some of the reasons countries trade with each other? What are some of the barriers, or obsticles that countries face when trading with each other?

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Bananas -- You can't get grow them in Washington. In fact, it doesn't grow very well in Florida or other southern U.S. areas. They grow great in countries Guatemala. Grapes --- You can't grow grapes in Guatemala; it's too hot! Grapes grow great in Washington. REASON FOR TRADE #1: NECESSITY

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Airplanes -- India could try to create an airplane industry that could rival the U.S., but that wouldn't be very efficient for them. It wouldn't be the best use of their current resources. Instead, it would be more cost effective to make shoes and trade for airplanes. Shoe -- The U.S. could try to be the biggest shoe producer in the world, but that wouldn't be very efficient for them. It wouldn't be the best use of their current resources. Instead, it would be more cost effective to build airplanes and then trade airplanes for shoes. REASON FOR TRADE #2: EFFICIENCY

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SHOE PRODUCTION AIRPLANE PRODUCTION 10m shoes 1000 planes U.S. Production Possibilities India Production Possibilities 7.5m shoes 500 planes The U.S. has a absolute advantage in trade because they could, if they wanted to, produce more shoes and more planes than India. However, this is ineffecient. There are benefits for specialization.

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= 1 P15,000 S 1,000 P 10,000,000 S = 1 P 10,000 S 500 P 7,500,000 S India can produce 5000 more shoes than the U.S. per plane, because they have a comparative advantage in make shoes. This is great for India, all they need to do is make lots of shoes efficiently and they can trade away for planes from the U.S. However, the rate of trade between planes and shoes have to be favorable. Follow with me...if you can. India is better at producing shoes rather than planes than America is better at producing planes rather than wheat.

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12m shoes 625 planes What if the trade rate for shoes to planes was 1 plane = 12,000 shoes? How would the production possibility curves change for each nation? Both India AND the U.S. has now, through trade, expanded the shoes and planes they can consume.

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What are the implications of international trade? * Increase consumption of all people * India exports more shoes; U.S. exports more airplanes. * Flip-side India produces less planes; U.S. produces less shoes.

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Potential problems with specialization: Suppose the U.S. and India relationship goes cold and they begin to hate each other and won't trade at all. 1st - America's shoe consumption would suffer. 2nd - India's airplane consumption would suffer. From a national security stand-point, which nation is put in greater risk if international sour? Answer: India Countries that trade in high-tech industries often have a political advantage.

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Country that imports more than exports Country that exports more than imports

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Reason #1: Foreign Direct Investment (a.k.a. people around the world take the money the U.S. gives them and turn around and invest their money back into our country. Rank. CountryBalance in $ 1. USA 1,810,000,000,000 2. UK 1,130,000,000,000 3. Hong Kong 789,100,000,000 4. Germany 763,000,000,000